1. Risk-Based Profit and Loss Attribution for Annuities Oliver Lockwood 19 November 2015

2. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Original motivation (1) Existing AoS process for annuity business inadequate to provide required understanding within timescales Fundamental redesign of process called for Issues reconciling AoS items with stresses from ICA 19 November 2015 2

3. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Original motivation (2) Existing process depended fundamentally on fixed order in which risks were assumed to occur Time-consuming Practical difficulties verifying that ordering being applied consistently throughout → reliability issues Paper to 2012 IAA Life Section Colloquium: http://www.actuaries.org/mexico2012/papers/Lockwood.pdf http://www.actuaries.org/mexico2012/papers/Lockwood.pdf Working Party established to articulate methodology in a way more accessible to practitioners 19 November 2015 3

4. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Working Party members Chair: Oliver Lockwood Ravi Dubey Margaret Emery Kevin Engelbrecht Andrew Scott 19 November 2015 4

5. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Reasons for focus on annuity business Simple type of business to use to illustrate concepts Liability cash flows do not depend on asset performance Historic compulsory annuitisation → financially significant 19 November 2015 5

6. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Risk factors Start from risk factors in internal model 19 November 2015 6 GBPEURUSD Interest rates333 Inflation333 Government bond spreads333 Supranational bond spreads111 Corporate bond spreads777 Currency movements relative to sterling N/A11

7. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Further detail on risk factors Base yield curve = swap yield curve – credit risk adjustment. This is starting point for spreads Interest rate, inflation and government bond spread stresses derived by principal component analysis, but with adjustments for smoothing and tapering down to fixed ultimate forward rate Government bond spread and inflation stresses are to forward rates. Interest rate stresses are to log forward rates, to avoid negative forward rates Level spread movements only Corporate bond spread stresses relative to next higher rating rather than risk-free yield curve, to avoid correlations close to 1 Risk factors are movements in market indices, rather than in specific assets held 19 November 2015 7

8. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Credit migration risk (1) Derive a base and a stressed transition matrix by reference to historic rating agency data Assets may transition between rating classes at different rates from those in base transition matrix Assets transition between spread curves for different ratings Partial offset on liability side if matching adjustment (MA) used 19 November 2015 8

9. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Credit migration risk (2) Stressing future transition matrix increases fundamental spreads - More assets default - More assets are sold on being downgraded below investment grade Only applies when fundamental spreads are above floor of 35% of long-term average spreads 19 November 2015 9

10. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Longevity and expense risks Can be brought into same P&L attribution framework as asset risks Requires look-through to how liability cash flows are derived Expense risk relatively straightforward Longevity risk more complex - depends on age, gender and possibly block of business 19 November 2015 10

11. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Value metric in which to perform P&L attribution Theoretical framework completely general Bottom line value metrics, e.g. own funds, most relevant in a reporting exercise Useful for illustrating concepts to consider assets and liabilities separately In this example: - Assets - Own funds without MA = Assets – BEL without MA - Own funds with MA = Assets – BEL with MA - NB: no risk margin as all risks hedgeable (except credit migration risk, for which a bespoke allowance is made) 19 November 2015 11

12. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Taylor series expansion Change in value metric = Expected closing value – Opening value + Actual closing value – Expected closing value = Expected change + f(Expected value of variable 1 + Risk factor 1, Expected value of variable 2 + Risk factor 2, …) - f(Expected value of variable 1, Expected value of variable 2, …) = Expected change + Sensitivity to risk factor 1 * Risk factor 1 + Sensitivity to risk factor 2 * Risk factor 2 + … 19 November 2015 12

13. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Expected position Does not fall out automatically, so needs to be defined Needs to be commercially acceptable as a forecast, but rigour of P&L attribution process imposes realism Definition open to debate subject to meeting these criteria 19 November 2015 13

14. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Expected position example Forward rates or spreads: Risk-free yield curve after one year: due to no-arbitrage arguments A-rated corporate spreads after one year: possibly more appropriate due to rating transitions 19 November 2015 14 Year 1Year 2Year 3 0.5%1.0%1.5% Year 1Year 2 1.0%1.5% Year 1Year 2 0.5%1.0%

15. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Deviation terms (1) Shape of yield curve movements will not in general be in line with risk factors Define: Deviation term = Actual ZCB price – Expected ZCB price – Sensitivity of ZCB price to risk factor 1 * Risk factor 1 – Sensitivity of ZCB price to risk factor 2 * Risk factor 2 – … Add deviation terms into Taylor series expansion Could have a deviation term for: - Each month (but potential excessive run time) - Each calibration point (but complications with expected roll-forward) 19 November 2015 15

16. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Deviation terms (2) Corporate and supranational bond spreads: Similar to yields Credit migration experience: Deviation term for each asset and each rating the asset could transition to Future credit transitions: Deviation term for each entry of transition matrix Inflation experience: Deviation term for each actual emerging RPI figure - Need historic RPI figures as well as latest one because of indexation lagging 19 November 2015 16

17. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Solving for the amounts of the risk factors that have occurred – Assumption changes Corporate bond spreads, supranational bond spreads, credit migration experience: Σ (deviation terms) = 0 gives a linear equation to be solved Inflation: - Vector of deviation terms should have zero component in direction of each risk factor - Gives 3 simultaneous linear equations Interest rates and government bond spreads: - Need to solve for both at once - Gives 6 simultaneous linear equations 19 November 2015 17

18. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Solving for the amounts of the risk factors that have occurred – Experience variances Bring experience variance deviation terms into same equations as assumption change deviation terms, rather than setting up separate experience variance risk factors Maintains consistency of risk categorisation with internal model Can still report experience variances separately when required for presentational purposes 19 November 2015 18

19. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Specimen results – Sterling interest rate risk 19 November 2015 19 AssetsOwn funds without MAOwn funds with MA Risk factor 1(58.6)(1.4)(1.6) % of risk factor occurred47%44%45% Sensitivity to risk factor(124.7)(3.2)(3.6) Risk factor 259.1(1.2) % of risk factor occurred(73)%(75)%(76)% Sensitivity to risk factor(80.9)1.61.5 … Small own funds sensitivities due to close matching Takes account of more assets needing to be held to back BEL when there is no MA Risk factor %’s slightly different in each column due to weighting differences

20. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Specimen results – Sterling inflation risk 19 November 2015 20 AssetsOwn funds without MAOwn funds with MA Risk factor 128.30.8 % of risk factor occurred65%62%64% Sensitivity to risk factor43.61.31.2 Risk factor 213.2(0.4) % of risk factor occurred48%46% Sensitivity to risk factor27.4(0.9)(0.8) … Similar sensitivities to sterling interest rate risk, but smaller magnitude of asset stresses because: - Inflation stresses only apply to inflation-linked assets and liabilities - Lower volatility of risk factors

21. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Specimen results – Currency risk 19 November 2015 21 AssetsOwn funds without MAOwn funds with MA EUR currency risk1.8 % appreciation of EUR9% Sensitivity to a 1% appreciation0.2 USD currency risk1.1 % appreciation of USD(11)% Sensitivity to a 1% appreciation(0.1) … Zero liability sensitivities, as liabilities denominated in sterling in this example Small asset sensitivities, in view of hedging Similar comments apply to overseas interest rate and inflation risks

22. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Specimen results – Spread risks 19 November 2015 22 AssetsOwn funds without MAOwn funds with MA GBP supranational bond spreads(1.4) 0.1 Spread widening occurred0.21% Sensitivity to a 1% widening(6.8) 0.4 GBP A-rated corporate bond spreads9.5 0.2 Spread widening occurred(0.32)% Sensitivity to a 1% widening(29.7) (0.7) … NB: material spread risk may remain after MA in some circumstances, because of regulatory restrictions on credit for MA for certain types of asset, e.g. callable bonds

23. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Specimen results – Credit migration risk 19 November 2015 23 AssetsOwn funds without MAOwn funds with MA Credit migration risk(14.4) (3.6) % of risk factor occurred36% Sensitivity to risk factor(40.0) (10.0) Only partial offset via MA when migration experience is different from that expected May also be changes in future fundamental spread assumptions, affecting MA only No changes in future fundamental spreads in this example, as equal to floor

24. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Unexplained Only two possible causes: 1.Data changes not mapped to a risk factor 2.Higher-order terms in Taylor series If unexplained too large, then attempt to rule out 1. before quantifying higher-order terms - Data errors - Risks not allowed for in internal model Consider structure of risk factor definitions to identify which higher- order terms are likely to be significant 19 November 2015 24

25. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Extension to new business risks Suggest bringing these into P&L attribution in same way as any other type of risk Expected position would use: - Sales volumes in line with business planning forecasts - Levels of profitability targeted by pricing process Independent verification that level of profitability targeted by pricing process is being achieved in practice Risk factors for: - Variance in sales volumes against those expected - Variance in profitability against that expected 19 November 2015 25

26. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Extension to value metrics that do not vary smoothly Examples: - Fundamental spreads only vary with credit transition matrix when they are above floor - Limited price indexation Similar problem in Economic Capital modelling – cannot sensibly fit smooth formulae to quantities that do not vary smoothly Can be dealt with by adding indicator variables as additional risk factors 19 November 2015 26

27. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Extension of remit of Working Party SII/Economic Capital modelling generally uses instantaneous stresses Only difference is that instantaneous stresses are calculated on an actual balance sheet, P&L attribution coefficients on an expected rolled-forward balance sheet Gives means of quantifying instantaneous stresses without a separate model run on each set of stressed assumptions Significant opportunity to improve efficiency of SII/Economic Capital reporting processes, including risk margin 19 November 2015 27

28. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Developing an Excel-based tool Import asset data and liability cash flows to provide a P&L attribution and calculate instantaneous sensitivities for any annuity fund Not yet released outside Working Party, as limited testing on actual data carried out Release publicly once a reasonable amount of testing has been performed Wikipedia-like model Macro to analyse dependency structure of variables and identify those needed for current application Version control process 19 November 2015 28

29. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Common code for all risk factors e.g. Sensitivity of matching adjustment = Sensitivity of asset-based discount rate – Sensitivity of risk-free rate Useful to be able to specify this simultaneously for all risk factors and all deviation terms Creates flexibility to use alternative risk categorisations - Different companies will use different categorisations in internal models and/or be on Standard Formula - Internal model categorisations not always most useful categorisations for managing the business, e.g. monitoring investment performance - Not all applications require most granular categorisation 19 November 2015 29

30. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Renaming of Working Party Renamed to ‘Industrialising Financial Reporting WP’ Techniques applicable to all forms of financial reporting, and to any type of business Opportunity for increased consistency and transparency of reporting practices Techniques unlikely to be developed separately by each company, for resourcing reasons 19 November 2015 30

31. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 19 November 2015 31 Questions Comments The views expressed in this presentation are those of invited contributors and not necessarily those of the IFoA. The IFoA do not endorse any of the views stated, nor any claims or representations made in this presentation and accept no responsibility or liability to any person for loss or damage suffered as a consequence of their placing reliance upon any view, claim or representation made in this presentation. The information and expressions of opinion contained in this publication are not intended to be a comprehensive study, nor to provide actuarial advice or advice of any nature and should not be treated as a substitute for specific advice concerning individual situations. On no account may any part of this presentation be reproduced without the written permission of the IFoA. E-mail: IFRWorkingParty@gmail.comIFRWorkingParty@gmail.com